HOA fees keep Somersett golf in the black

Mar. 13, 2012

A golfer watches his putt at on the ninth green at Somersett in August. / RGJ File

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A debate about the use of homeowners’ association funds is pitting one group of Somersett residents against the community’s developer. At the center of the controversy is the Somersett Owners Association’s (SOA) decision to take more than $750,000 annually from homeowner association funds to support the troubled Somersett Country Club’s 18-hole golf course. The deal was criticized by Somersett United, a group of residents within the Reno community, because the agreement was approved by SOA without a full homeowner vote. The group, formed in November, says if the developer wants to make large financial deals without a vote from residents, then it should not use homeowner money.

“The whole purpose of this deal is to bail the golf course out,” said Joe Bower, a member of Somersett United. “It just makes no business sense. We believe this is an illegal agreement and should have been put up to a vote to the homeowners, just like they did over at D’Andrea.”

Residents of the D’Andrea community recently voted not to provide financial support to their own ailing golf course. Somersett’s developer, however, says the deal was made to provide more value to homeowners and the community. As part of the deal, the community gets an expanded driving range, bocce ball courts and fishing this year, as well as a new putting course in 2013.

“The golf course did not approach the association, we approached them,” said Blake Smith, managing partner of Somersett Development and president of the Somersett Owners Association. “This is a matter of us saying we don’t have enough land but we want to add more amenities to the community so we are in negotiations with them right now to do that. This is not a bailout.”

Power struggle

Somersett was started more than 20 years ago, as a grand vision by Smith. Since then, he has built it into one of the area’s high-profile communities. Besides the golf course, the 3,000-acre community boasts more than $10 million in amenities, including two 25,000-square-foot facilities, a fitness center, sports court, two tennis hard courts, spas and aquatics. Somersett also boasts the largest homeowners association in Northern Nevada, with more than 2,400 households and an operating budget of $4.5 million.

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“Contrary to other areas where HOAs are struggling, we are 100 percent funded and even operated on a surplus last year,” Smith said.

Members of Somersett United, however — which comprises more than 50 supporters, according to the group — question Smith’s authority over all that money. Smith heads the three-member Somersett Owners Association board and has yet to turn over control of the association to residents, the group said. The other board members are developer appointee Tiffany Roland and elected homeowner Ray Lee. Since the board is still developer controlled, homeowners do not get to directly vote on key decisions.

Nevada Revised Statute 116.31032 requires a developer to turn over HOA control to residents within 60 days once a new community reaches a conveyance or residential threshold of 75 percent. Smith says Somersett has 2,415 households and can be built up to 3,700 planned unit developments. The developer also has an option to build an additional 1,300 units after that. Using the 3,700 limit, conveyance at Somersett would be at 65 percent. Somersett United, however, says the Reno City Council approved a planned unit development for 3,062 units. An independent auditor’s report by The CFO Group Inc. also stated that the Somersett Development has sold all the lots it owned within the SOA as of Dec. 31, 2010.

“The CC&Rs (covenants, conditions and restrictions) do say that the developer reserves the right to build up to 5,000 units,” Bower said. “But you can’t satisfy that by simply digging a hole in the ground and say, ‘OK, I’m expanding.’ (The expansion) process has to be approved as well.”

Smith claims state law trigger points for turning over control of the HOA have yet to be met. Nevertheless, the developer is in the process of turning over the association to homeowners, he said.

“The turnover will be concluded within a year,” Smith said. “There are just a couple of things we need to clean up before we hand off (the association).”

The $750,000 figure mentioned by Somersett United also includes a $320,000 annual fee that the association has already been paying to Somersett Country Club to maintain a separate nine-hole golf course owned by the community. The remaining $430,000 community fee equates to just $15 per resident and is being taken out of HOA surplus funds, Smith said. This means homeowners won’t see their monthly rates go up, he said. Smith also contested critics’ characterization of the deal as a bailout.

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“(Somersett Country Club) has to make it on their own and the amount added to their bottom line for this new amenity agreement will not ‘save’ them,” Smith said. “Yes, (the country club) has had a rough time, just like any other golf course in the U.S., but from what I’m hearing from (its) president, they are cash flow positive.”

Documents obtained by the Reno Gazette-Journal show that after losing more than $685,000 in 2011, Somersett Country Club is projecting a net operating profit of more than $120,000 this year. The projection includes the $434,700 community fee that the Somersett Owner’s Association will start paying the course this year.

Without the new fee, the golf course is projected to lose money once again. Queries to the club were referred to Smith.

Nevada Revised Statute 116.3114 requires surplus funds to either be returned or credited to homeowners unless stated otherwise in an existing agreement.

“Instead of using the surplus to buy stuff, he should be returning that money to us,” Bower said.

Debating the deal

To safeguard the investment of Somersett homeowners in the golf course, the deal with Somersett Country Club gives the homeowners’ association the option to buy the operation for $1 should it fail, Smith said. The association also is not required to reimburse country club members if such a scenario occurs, Smith added.

“This option was negotiated intensely to protect all the homeowners in Somersett and their home values,” Smith said. “In my opinion, the biggest event that could hurt the value of homes in Somersett — next to this Depression-level deterioration of home values — would be for the golf course to go bankrupt....”

A document for the Somersett Country Club deal dated October 2010 that was obtained from the Washoe County Recorder’s office shows that the land for the golf course and its water rights will revert to Somersett Development — not the homeowners — if the operation ceases to be a golf course for 24 straight months. The information was met with head shaking by the members of Somersett United.

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“It’s kind of a phony offer because homeowners don’t get the land and (Smith) also gets the water rights -- which, as they say, is everything in the West,” Bower said. “Meanwhile, we get the golf course operations for $1 -- and it happens to be an operation that’s losing hundreds of thousands of dollars per year.”

Smith called the criticism unfair and stressed that he had nothing to gain personally from the golf deal.

“It appears this group is on a witch hunt to find some smoking gun against me personally and I’m unsure why,” Smith said. “I know people in all associations have their opinions on the ‘big bad developer’ but I don’t believe I have ever given this group any reason to doubt my intentions of trying to make Somersett the best place to live in Northern Nevada.”

Members of the group, meanwhile, said it’s time for Smith let homeowners have a more direct say .

“He built a heck of a community and he deserves credit for that,” Bower said. “But as individual owners, we would just like more openness and better communication about what’s going on in our own community.

“Our biggest issue is a lack of transparency with board control and the way this golf deal was handled. We don’t know why he insists on holding on but it’s time for him to let go.”